Delta Airlines Internal Environment Analysis - Research Paper Example

?Delta Airlines Case Analysis Table of Contents Delta Airlines Case Analysis Table of Contents 2 Situation Analysis 4 Products 4 Satisfaction 4 Internal Environment Analysis 5 SWOT Analysis 5 Strengths 5 Weakness 5 Opportunities 6 Threats 6 External Environmental Analysis 6 Porter’s Five Forces 6 Bargaining Power of Buyers 7 Bargaining Power of Suppliers 7 Threat of New Entrants 7 Threat of Substitutes 7 Competition among the Existing Players 8 Assumptions and Missing Information 8 Statement of the Problem 8 Developmental Alternatives 9 Evaluations of the Alternatives and Recommendations 10 Implementation 11 Evaluation and Control 11 References 13 Situation Analysis Delta Airlines is one of the largest legacy carriers based in USA. The company was established in 1928 by CE Woolman. With a humble beginning the company presently carries about 160 million passengers every year across 65 nations around the world. Approximately 80000 employees are employed at the organization. The company has alliance partners that enable it to provide greater connectivity to its customers. In addition to the legacy model the company also has a subsidiary named Delta Express which is the low cost model of the airline company. The company has a large fleet at its service numbering about 700 aircrafts that includes small planes to jumbo jets for long haul flights (Delta Airlines, 2011). Products Delta Air has a service portfolio that provides air travel facility to customers. The service portfolio of the company is comprised mainly of a full time legacy carrier model as well as a low cost model. The bulk of business is focused towards the legacy carrier that provides air connectivity not only in the domestic market in USA but also to a large number of nations abroad. The company also has alliance partnerships with leading alliances that helps increase the connectivity. In addition the company also has a hub and spoke model and a code share agreement to broaden its area of service offering. Customer Satisfaction Customers form the main area of focus for the strategists at the organization. Every effort is being made to ensure the full satisfaction of the customer. The customers are provided with wide range of facilities that includes on board entertainment, food etc. Customers also have the option of web check in and internet bookings. The company also has loyalty points for frequent travellers. Due to its dedicated efforts towards customer satisfaction the company was ranked 1st in the Fortune’s list of most favoured airlines (Delta Airlines-a, 2011). Internal Environment Analysis SWOT Analysis SWOT is an acronym for Strengths, Weakness, Opportunities and Threats. The following section would analyse the strengths, weakness opportunities and threats faced by the airline. Strengths The main area of strength for Delta Airlines arises from its strong brand image and a formidable market position in the US market. The airline has a very large network helping it connect with a large number of both domestic as well as international destinations. The hub and spoke model of the airline also contributes to its success story. The existing hubs at Atlanta and New York provide competitive advantage to the organization (Datamonitor, 2007, p.24). Weakness The major weaknesses in the firm arise from the dip in demand for the services due to the ongoing effects of the financial crisis. The company also faces issues with regard to low yield of passengers and dip in cargo volume business. In addition to this high cost of fuel and labour also serve to generate considerable weakness on the business prospects of the organization (Datamonitor, 2007, p.24). Opportunities Opportunities for Delta Air mainly arise from the high growth of passenger traffic mainly in the Asia Pacific region and Latin America. In addition to this growth of cargo over the pacific has also improved showing good opportunities for the organization (Datamonitor, 2007, p.24). Opportunities for the organization also arise from the fact that the markets across US and other nations have shown signs of resurgence that has led to generation of demand for the services of the organization. Threats The most important threat for Delta Airlines comes from the low cost airlines. These airlines have come up with rock bottom prices that have eroded the market share of the legacy carriers like Delta Air. In addition to the low cost carriers Delta Air also faces stiff competition from other legacy carriers in the US market and abroad. External factors also include aspects like high fuel prices, rising labour rates and unionisation within the organization that can drastically affect the business prospects of the firm in the market (Rivkin & Therivel, 2005, p.1). External Environmental Analysis Porter’s Five Forces The competitive environment of any organization can be analysed by using the framework of the Porter’s Five Forces Model. The model states five forces that largely shape the competitive environment of an organization. Bargaining Power of Buyers The consumers in the US market are being increasingly flooded with large number of options that includes both legacy carriers as well as low cost airlines. The increased market competition has led to lower switching costs for the customers (Rivkin & Therivel, 2005, p.2-5). This leads to the conclusion that the bargaining power of buyers is high in nature. Bargaining Power of Suppliers Suppliers for Delta Air include the aircraft manufacturers as well as the oil companies that supply fuel to the company. Approximately 15 percent of the total cost of Delta air goes towards the aircraft manufacturers for leasing rent and servicing of aircrafts. Considering the fact that there are only two major suppliers namely Boeing and Airbus companies like Delta air face high switching costs. In addition skyrocketing fuel prices have also put pressures on the company whose 15 percent of the costs are attributed towards fuel expenses. This extent of influence of this force is high in nature. Threat of New Entrants Being a capital intensive industry the airline industry requires high initial cost of operations. Combined with the aspect of low demand and increased competition the threat of new entrants is very low in this industry. Threat of Substitutes Substitutes for the services of Delta Air mainly include low cost carriers, rail and road transport. The company faces stiff challenge in the domestic market from all these sources which makes the threat of substitutes high for this industry. Competition among the Existing Players The airline market is characterised by cut throat competition both from the low cost carriers as well as other legacy carriers. The company also faces competition from other airline companies in the foreign markets both in passenger as well as cargo segments. The price war triggered by the competition has put considerable pressures on the bottom line profitability of the airline. This leads to a conclusion that the extent of influence of this competitive force in the airline industry is very high. Assumptions and Missing Information The information for conducting the SWOT and Porter’s five forces were limited in the areas of human resources and its management. This information would have helped in generating a better analysis. Hence it has been assumed that Human resources do not pose issues within the organization. The unavailability of certain crucial data sets about the internal resources of the company also proved to be a hindrance in conducting the study and the study was largely conducted by talking publicly available information. Information with regards to the oil suppliers of the company was also missing that if available would have helped in analysing the influence of this crucial aspect in a major way. Statement of the Problem Delta Air faces quite a few issues that range from the dip in demand in the US domestic market as well as the challenges thrown by the advent of the low cost carriers of the company. These aspects have put up considerable pressures on the business prospects of the firm. Problem Statement: How will Delta Air handle the issues of dip in demand and counter the increased competition in the consumer market so as to generate competitive advantage in the market and improve its bottom line profitability? Developmental Alternatives Alternative strategies for ensuring profitability and sustainability of Delta Air can be analysed using the Ansoff’s Matrix shown below. Figure 1: Ansoff’s Strategic Matrix (Source: Luck, 2008, p.346) Delta Air can undertake a market penetration strategy by adding more routes as well as increasing the flights on profitable sectors both within the nation as well as abroad. It would also include augmentation of the cargo services that have of late generated considerable demand in the market. It would also include entering into code share agreements with other carriers so as to increase connectivity and beat the competition. Market development strategies would include venturing out into new markets that have considerable potential like China and Latin America. Product development strategies would include setting up a subsidiary for a low cost carrier in the present market and finally new market strategy would involves entering new markets with a completely new product offering. Evaluations of the Alternatives and Recommendations The options available before Delta Air to cater to the problem issue stated in the previous sections include four different strategies. A deeper analysis of the business and industry shows that the company can adopt a combination of market penetration and market development. A market penetration using its existing product line would help the firm to have a focus approach in the industry. This would allow it to use its present expertise to tap new market. Code share agreements would also help in countering the competition and would also promote a consolidation in the market. The existing hub and spoke model as well as the customer centric approach should be utilised and made more effective so as to generate competitive advantage in the market. A Product development strategy does not seem viable considering the fact that a huge initial capital would be required. Moreover in the current turbulent business environment and absence of credit flow it would be a risky proposition for the company. The company can however consider a market development strategy considering the good potential and the growth stage of the markets in nations like China and Latin America. Using its existing resources and brand image the company can establish a good strategic foothold in these nations and can tap the market potential to generate profits for the company. Entering into a new market also makes sense considering the fact that the traditional markets in USA and Europe have become almost saturated and there is very les space for growth. The combination of these two strategies can help generate advantage for the firm without changing the focus and direction of the company and help generate valuable resources for the firm to maintain profitability and sustainability. Implementation In order to implement the market penetration strategy the company would rely upon two aspects namely a code sharing agreement and augmentation of the existing hub and spoke model of the company. Delta Air would enter into strategic code share agreements with other carriers that would help generate collaboration in the market and would also serve to compliment its service offering. In addition to this the company would also put greater focus on providing greater value for customers by providing greater facilities on board that can help generate a good positioning for the company. The company would also increase the number of hubs and also increase its presence in smaller towns with good potential and link them to the major hubs. The market development strategy would include an in depth analysis to find out a suitable nation for expansion. This would be followed by creating a service mix customised to meet the needs of the target market audience. The company would leverage upon its expertise in customer management and operations to replicate a good model in the new market. Delta Air would also follow a strategy of thinking globally and acting locally so as to establish a formidable image in the minds of the customers in the market (Carey, 2007, p.143). Evaluation and Control In addition to formulation and implementation of strategies it is also essential to include a mechanism for feedback and control. Delta Air can implement a Balanced Scorecard Technique in its business. This tool would allow the firm to evaluate its financial as well as non financial strategies (Balanced Scorecard Institute, 2011). This would help the company to get effective and timely feedback about its business strategies so that it can take remedial actions at the correct time. This would help the firm save on aspects of cost and would also provide a better value proposition to the customers that would ultimately generate sustainable competition for the organization. References Balanced Scorecard Institute. (2011). Balanced Scorecard Basics. Retrieved June 15, 2011 from http://www.balancedscorecard.org/BSCResources/AbouttheBalancedScorecard/tabid/55/Default.aspx. Carey, B. (2007). The Carey Formula: Your Ideas Are Worth Millions. The Carey Formula. Datamonitor. (2007). Delta Air. Retrieved June 15, 2011 from http://favormall.net/clientimages/38996/aviation-delta.pdf. Delta Airlines. (2011). Corporate Information. Retrieved June 15, 2011 from http://www.delta.com/about_delta/corporate_information/index.jsp. Delta Airlines-a. (2011). Awards & Recognition. Retrieved June 15, 2011 from http://news.delta.com/index.php?s=18&cat=43. Luck, D. (2008). CIM Coursebook Assessing the Marketing Environment. Butterworth-Heinemann. Rivkin, J.W. & Therivel, L. (2005). Delta Air Lines (A): The Low-Cost Carrier Threat. Harvard Business School. 9-704-403. Read More